Present value

Chapter 6 | Capacity Planning | | TRUE/FALSE 1. Capacity is the maximum rate of output of a process. Answer: True Reference: Introduction Difficulty: Easy Keywords: capacity, maximum output rate 2. Capacity decisions should be made separate from strategic decisions. Answer: False Reference: Introduction Difficulty: Moderate Keywords: capacity decision, strategic decisions 3. Capacity can be expressed by output or input measures

CAPACITY PLANNING Real Options Analysis Practice Questions and Solutions CAPACITY PLANNING Question 1: PROJECT SABLE Use a 30% per year discount rate to evaluate Project Sable, which has two phases. You may invest in the first, in both or in neither. You may not invest in the second phase without investing in the first.  Phase 1 requires an investment of $100. One year later the project delivers on the average $120.  At that time, after the phase 1 payout has been received, you may invest

investment projects create (vs destroy) value. Finance>>Working capital management: The management of short-term assets and liabilities. Ensures cash inflows = cash outflows at all times. Finance>>Capital Structure: The management of long-term financing. Balances debt & equity to maximize value. Payout>>Dividends and Share Repurchases: The management of discretionary cash and cash flow. Balances dividend payments and cash retention needs. Value = the discounted sum of cash outflows

Part I A. Present Value with Discount rate of 7% = 15000/(1+7%) = 15000/1.07 = $14,018.69 Present Value with Discount rate of 4% = 15000/(1+4%) = 15000/1.04 = $14,423.08 B. Account A - Present Value with Discount rate of 6% = 6500/(1+6%) = 6500/1.06 = $6,132.08 Account B - Present Value with Discount rate of 6% = 12600/(1+6%)^2 = 12600/1.1236 = $11,213.96 C. Present Value of Gold Mine 7% = 4900000/1.07 + 61,000,000/(1.07)^2 + 85,000,000/(1.07)^3 = 45,794,392.52 + 61,000,000/1.1449 + 85

1. Basic present value calculations Calculate the present value of the following cash flows, rounding to the nearest dollar: a. A single cash inflow of $12,000 in five years, discounted at a 12% rate of return. b. An annual receipt of $16,000 over the next 12 years, discounted at a 14% rate of return. c. A single receipt of $15,000 at the end of Year 1 followed by a single receipt of $10,000 at the end of Year 3. The company has a 10% rate of return. d. An annual receipt of $8,000 for three

a bear market d. 0 being sold by insiders Objective: Create a financial plan. 15. __________ says to forecast the firm’s cash flows, and analyze the incremental cash flows of alternative decisions. a. 0The signaling principle b. 0The time value of money principle c. 0The principle of incremental benefits d. 0The principle of risk-return Objective: Create a financial

flow targets and maintain Stryker’s 20% growth benchmark. To what extent have they been shaped by elements of corporate finance theory? They are heavily influenced by corporate finance theory All submissions are required to show the net present value (NPV), internal rate of return (IRR) and payback period. They need to highlight the project’s anticipated outgoing cash flow and earnings

MEMORANDUM To Apex Investment Partners: According to my analysis of the Accessline’s proposed term sheet, I do not believe that Apex would serve its own interests, or those of its investing partners, by investing in Accessline according to the terms proposed. By investing at the proposed valuation, according to the proposed control and incentive structure, Apex would be shouldering a disproportionate share of the risk should Accessline fail to meet its performance targets, or require

• Present Value: The current worth of a future sum of money or stream of cash flow at a specified rate of return. Future cash flows are "discounted" at the discount rate; the higher the discount rate, the lower the present value of the future cash flows. • Present value of annuity: An annuity is a series of equal payments or receipts that occur at evenly spaced intervals e.g. leases and rental payments. • Present value of a perpetuity is an infinite and constant stream of identical cash flows.

per annum. The value of each of the firm 's shares is (A) (B) $12 (C) $120 (D) 16. $10 $100 In the Gordon model, the value of ordinary shares is the (A) present value of a constant, growing dividend stream. (B) actual amount each ordinary shareholder would expect to receive if the firm 's assets are sold, creditors and preference shareholders are repaid, and any remaining money is divided among the ordinary shareholders. (C) present value of a non-growing